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Y2 Financial economics > Equity financing > Flashcards

Equity financing Flashcards

1
Q

What is venture capital?

A

Equity investment in new private companies

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2
Q

Most new companies initially rely on:

A
  • Family funds

- Bank loans

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3
Q

Equity investment provided by wealthy individuals are known as:

A

Angel investors

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4
Q

Many adolescent companies raise money from:

A

Specialist venture capital firms

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5
Q

What do venture capital firms do?

A
  • Pool funds from a variety of investors
  • Seek out promising start up companies
  • Finance the firm’s operation
  • Work with the companies as they grow
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6
Q

Are venture capital firms passive investors?

A

No

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7
Q

What are two non monetary benefits that venture capital firms can offer?

A

Advice, experience and contracts

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8
Q

Most venture capital funds are organised as:

A

Limited private partnerships

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9
Q

In VC firms, pension/mutual funds and other wealthy private investors are the:

A

Limited partners

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10
Q

The management company of the venture capital firm is the:

A

General partner

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11
Q

What are the two parts of a VC’s typical investment policy?

A
  • Accept high uncertainty

- Identify failed investments early and accept loss

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12
Q

What are two ways for VCs to cash in on their investment?

A
  • Sell shares to a larger firm directly

- Sell shares when the firm becomes public

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13
Q

What is a primary offering?

A

New shares sold to raise additional cash

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14
Q

What is a secondary offering?

A

Existing shareholders can cash in by selling part of their equity holdings

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15
Q

What are underwriters?

A

Firms that buy an issue of securities from a company and resell it to the public, and provide advice

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16
Q

What is a registration statement?

A

document needed for approval by the stock exchange operator during the beginning stage of an IPO

17
Q

What are the two pieces of information on a registration statement?

A
  • Firm’s history and existing situation

- The proposed projects intended to be financed with the funds raised

18
Q

What are the 5 stages of an IPO?

A
  • Registration statement
  • Prospectus
  • Road show
  • Book building
  • Issue price
19
Q

What is a road show?

A

Talk to potential investors to get an idea of how much stock they wish to purchase and for how much

20
Q

What is book building?

A

Build a book of likely orders and use this information to set issue price

21
Q

What are three IPO costs?

A
  • Spread
  • Admin costs
  • Direct costs
22
Q

What is ‘spread’ in an IPO?

A

Difference between the price that the underwriter buys the new issue, and the price it is offered to the public

23
Q

What are examples of admin costs in an IPO?

A
  • Legal counsel
  • Financial advisers
  • Accountants
24
Q

What are direct costs in an IPO?

A
  • Mailing

- Printing

25
Q

Underpricing occurs when:

A

A new stock has an issue price below the “true” or “fair” valuation of the company’s share

26
Q

What is one reason to underprice new issues?

A

Realising better returns once the stock price rises

27
Q

What is the ‘winners curse’?

A

The idea that if an investor can easily buy all the stock at issue, then they may have overpaid

28
Q

What are two types of stock issues after the original IPO?

A
  • General cash offer

- Rights issue

29
Q

What is a general cash offer?

A

Sale of securities open to all investors by an already public company

30
Q

What is a seasoned offering?

A

Sale of securities by a firm that is already publicly traded

31
Q

What is a shelf registration?

A

A procedure that allows firms to file one registration statement for several issues of the same security

32
Q

What are foreign bonds?

A

Companies issue bonds in another country’s domestic currency

33
Q

What are eurobonds?

A

Bonds underwritten by a group of international banks

34
Q

What are global bonds?

A

Bonds where one part is sold in the euro bond market and the remainder sold in the company’s domestic market

35
Q

What is a rights issue?

A

Issue of securities offered first or only to current stockholders

Y2 Financial economics (20 decks)

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